The Insurance Claims Handling Problem
Flood claims can be very complex to handle. For a claim of any significant size, the first people on the scene from the insurance industry will usually be from the loss adjuster. Their job it is to assess the amount of damage and the work needed to reinstate the property. The loss adjuster will then be responsible for checking policy cover, estimating costs, carrying out the ongoing supervision of the work, and making recommendations about interim and final payments.

Loss Adjusters

Loss adjusters have a difficult time when a major flood happens. For years, their margins have been squeezed by insurance companies, reducing the possibility of any spare resources for dealing with major events, and increasing their dependence on less highly trained staff.

A recent report shows the results of a survey based on 289 responses to 37 flood damage scenarios from loss adjusters (60%), consultant surveyors (23%) and other experts. The report analyses the ways in which the respondents would deal with different types of flood damage. The report represents a fascinating exploration of the approaches of experts in flood damage repair. It highlights that frequently the methods selected are more influenced by the expectation (real or perceived) that the insurer is looking for the cheapest possible solution, rather than the best or most resilient one.

Insurers have added to loss adjusters' difficulties by each insisting on a different set of information requirements and reporting formats. When the loss adjuster is called out, he has to check what information the principal wants, and the principal's attitudes on topics such as delegated authority for urgent interim payments, salvage disposal and alternative accommodation. This lack of standardisation slows down claims handling enormously, and the lack of consistency in dealing with different claimants can often lead to dissatisfaction. Some aspects have improved since the Towyn floods in 1990, which made 6,000 people homeless. This event caught the industry unprepared, especially in dealing with fraudulent claims. Problems still remain, however, and these led to a damning report by Warwickshire Trading Standards after the 1998 floods. Similar problems were reported by Lewes Council after the 2000 floods, with comments such as "adjusters under resourced", "The loss adjuster kept changing", "Slow on making interim payments".

A system has been developed to help to speed up the handling of flood claims and storm claims after a major event. Extensive field-testing has demonstrated its effectiveness, but, despite strong support from insurance underwriters and loss adjusters, claims managers could not see any direct benefits to them and the system was shelved. The system is called "FASTER" (Flood and STorm Event Reporting), and more details appear later in this report and in Appendix 3.

Property Damage Restoration Specialists

Before a flooded property can be repaired, it has to be dried out. This is a job for specialist firms such as Munters who have the expertise and equipment needed. Sometimes it can take several months for the property to be dried out, especially in an autumn or winter flood. Generally the longer it takes to start the drying out process, the bigger the claim will be as water soaks into the fabric of the building and capillary action plus evaporation spreads the dampness to upper floors. There is also the very real issue that the longer it takes before the claimant sees action being taken, the more likely the claimant will be to inflate the cost of the claim and complain about the handling of the claim.

As with loss adjusters, property damage restoration companies have problems with a disjointed approach from the insurance industry. Each insurer has different requirements and favours different companies. Munters estimate that if they were to do a whole street of similar houses, instead of doing the same number of houses but scattered all over the flood damaged area, they could save the insurance industry up to 40% in costs through economies of scale and efficient use of labour and equipment. Munters argue for a more co-ordinated approach with better communication.

Builders and ancillary trades

Finally the builders should move in, but only after the property has been fully dried out by specialists. Such specialists can predict when the building will be dry, and builders can plan their work properly. If rebuilding is done too soon, before the building has fully dried out, mould can develop and the work may have to be taken down and re done.

Is there a better way?

It is certainly true that a much more efficient use or resources could be achieved if expertise and resources were to be pooled and standardised claims handling structures and procedures were put in place. In this way, each householder could get equal treatment and service in a smooth efficient operation, and "claims surges" which can lead to shoddy work by cowboy builders can be reduced.

At present the situation is reminiscent of the old private fire brigades in Britain . These were set up and owned by insurance companies. They would only deal with fires in buildings that displayed the relevant insurer's fire mark. With the likelihood of floods becoming more frequent in the future, perhaps a national flood response service would make more sense? For example, the fire brigade could do more than just pump water out of basements, they could co-ordinate the employment of property recovery specialists, as they used to do 30 years ago with the Salvage Corps. The Salvage Corps was a "blue light" service funded by the insurance industry acting collectively to salvage property after a fire. They worked alongside the fire brigade, but the service was abolished in the 1970s. Meanwhile in Germany , storm and flood damage account for the biggest part of all fire brigade exercises and the German fire brigade have a set of tactics for dealing with all adverse weather scenarios.

The average house fire has a 340-year return period, whereas the flooding return period for at least 400,000 houses in England and Wales is less than 100 years. Is there not a case for the insurance industry resurrecting something like the Salvage Corps in flood hazard areas to co-ordinate flood salvage and recovery work?

Insurers will no doubt argue that their claims handling skills give them the chance to gain competitive advantage, but that was when insurers were looking to gain and keep business in flood hazard areas. Surely it would be to their benefit to look for ways to reduce claims costs in such areas, without the risk of standing out as providing a lower customer service than their competitors?

As it is, there is growing dissatisfaction with the insurance industry, and demands from flood victims for some sort of league table of claims handling performance.


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